How Sick Is France's Labor Market?

The NYT had a piece on changes to French labor market regulation that will make it easier for employers to cut wages. The piece implies that France has a seriously dysfunctional labor market:

"There is wide agreement that the country has to bring down its relatively high labor costs if it is to compete with lower-wage destinations overseas and even with Germany, which underwent its own painful labor-market restructuring over the last decade and currently has a jobless rate of just 5.4 percent.

"It is the kind of structural overhaul that European Union leaders are urging to increase employment and growth in France, which is being given two more years to get its budget deficit down to the European Union-mandated 3 percent of the gross domestic product. But even the government acknowledges that more must be done, including further changes to pensions.

"France is in the midst of an unemployment crisis, with nearly 11 percent of the work force unemployed in a period of near recession. Among people under 24, the problem is even worse, with more than 26 percent jobless."

France's economy is clearly depressed, but the more obvious culprit would seem to be the fallout from the collapse of housing bubbles across Europe and the austerity policies being imposed by the European Central Bank and the European Union. While France's unemployment picture does look bad, its employment to population ratio tells a different story. According to the OECD, the employment to population ratio (EPOP) in France, for people ages 16-64, was 63.9 percent in 2012, down only slightly from its 64.2 percent rate in 2007.

By comparison, the EPOP in the United States has fallen 4.8 percentage points over this period, from 71.9 percent in 2007 to 67.1 percentage points in 2012. The reason that the United States has not seen a comparable rise in its unemployment rate is that a large portion of those without jobs have given up looking for work. Most economists would probably not consider this evidence of a well-functioning labor market.